Beijing, China — China is aiming for a 5% GDP growth target for 2025, maintaining the same growth target as in 2024, according to senior economist Luo Zhiheng. Luo, the chief economist at Yuekai Securities, outlined this projection following the recent Central Economic Work Conference, where policymakers discussed the macroeconomic policies for the coming year. This target reflects China’s proactive approach to tackling economic challenges and fostering stable growth.
In an interview with China Perspective, a series by China Daily, Luo emphasized that achieving the 5% growth target would require front-loading fiscal and monetary policies with intensity and speed. These measures are aimed at staying ahead of market expectations and aligning with the national economic agenda. “The fiscal and monetary policy toolkit should be deployed rapidly and forcefully to achieve better synergy and to pre-empt market reactions,” Luo stated.
Shifting Policy Stance: Proactive Fiscal and Loose Monetary Policies
The Chinese government has shifted its approach to macroeconomic management, marking a notable change in its strategy. For the first time in many years, China has adopted a more proactive fiscal policy and a moderately loose monetary stance, signaling a departure from the 14-year tradition of prudent monetary policy. This shift is intended to provide stronger support for the economy as it faces a complex array of challenges:
- Weak domestic demand, especially in key sectors
- Global economic uncertainties, including trade tensions with major economies like the United States
- Ongoing structural challenges within China’s economy, including a slowdown in manufacturing and exports.
Luo stressed the necessity of countercyclical measures to help stabilize the economy and maintain growth momentum. He noted that in 2025, China’s fiscal deficit ratio could increase to 4% of GDP, up from the current 3% target set for 2023. The increase would signal greater fiscal support to counter the ongoing economic slowdown and reassure markets about the government’s commitment to growth.
Fiscal and Monetary Measures: A Robust Countercyclical Response
To enhance fiscal policy effectiveness, the government will look to raise fiscal spending through expanded local government special-purpose bonds. Luo suggested that these bonds should be allocated based on project-oriented approaches and that local governments should have more autonomy in their usage. The State Council confirmed this shift, introducing a negative list mechanism to manage the usage of these funds more efficiently.
On the monetary policy front, Luo anticipated further interest rate cuts and reductions to the reserve requirement ratio (RRR) in 2025. The People’s Bank of China (PBoC) currently has about 0.5 percentage points of room for additional rate cuts, which could lower borrowing costs and stimulate investment. The current RRR for financial institutions stands at about 6.6%, which still offers substantial flexibility compared to other global central banks’ policies.
However, Luo emphasized that monetary easing measures need to be carefully calibrated to avoid disrupting the exchange rate or the profitability of the banking sector, which could have long-term consequences for China’s financial stability.
Expanding Domestic Demand and Transitioning to a Consumption-Driven Economy
One of the key focuses of the Chinese government next year will be expanding domestic demand, which is viewed as a critical factor in boosting economic growth. While China has been making strides to transition from an investment-driven economy to one that is more consumption-driven, Luo pointed out that such a transition will not be swift or easy.
Instead of a binary approach of prioritizing either investment or consumption, Luo suggested that a balanced mix of both is necessary. Investment and consumption should work in tandem, complementing each other to foster well-rounded economic growth. By leveraging both forces, China can better navigate its economic transformation and sustain growth in the medium-to-long term.
A Strategy for Growth Amid Global Uncertainty
The combination of aggressive fiscal stimulus and monetary easing, alongside targeted measures to boost domestic demand, positions China to respond proactively to a volatile global economic landscape in 2025. However, as Luo Zhiheng noted, the key to success will be to stay ahead of market expectations and address issues like sluggish demand and structural challenges before they can further impede growth.
While the shift to a more consumption-driven economy will take time, the government’s focus on investing in human capital and spurring domestic demand will play an essential role in ensuring China’s long-term economic resilience. The road ahead may be challenging, but with carefully calibrated policies and timely interventions, China is aiming to steer its economy toward sustainable growth despite a myriad of global pressures.